Archive for category Business

This week, it’s all about the Trade Promotion Authority being sought by the administration in pursuit of the Trans Pacific Partnership, a massive and massively complex free trade agreement being negotiated among 12 nations, including Japan, Mexico, Canada, and the US, along with a variety of Pacific nations seeking freer trade with the US.

Free trade hasn’t been this hot a topic since NAFTA and the “giant sucking sound,” the phrase for which Ross Perot is probably best remembered.

Much of the objection has centered around the alleged secrecy of TPA. Of course, there is exactly zero secrecy around the Trade Promotion Authority, something which has routinely been granted Presidents since Roosevelt. It’s merely the authority to seek an up-or-down vote on the package once agreement is reached.

The TPP itself is still secret, and it needs to be. While it’s amusing to see libertarians like Sen. Rand Paul argue for aggressively Wilsonian ideas like open negotiations, such an approach would almost certainly never lead to an actual trade agreement – there are simply too many competing interests to balance for such talks to be held in public. If and when an agreement is reached, there will be plenty of time to examine it, and if, on balance, our interests are not served, Congress will get a chance to vote it down, and send our negotiators back for another try.

One element that isn’t being discussed is the silent role that China is playing in these negotiations, and the stake that it has in their failure.

China is becoming dangerously overconfident in its assertion of sovereignty over the international waters of the South China Sea. It’s developing strategic weapons designed to prevent our navy from operating effectively anywhere in the Pacific. And it will likely try to declare an Air Defense Identification Zone (ADIZ) over the South China Sea sometime this summer.

The US has an unstated, but increasingly clear, policy of pulling together bilateral and multilateral relationships in opposition to China’s hegemonic ambitions. This includes even Vietnam, a country with which the US has not always enjoyed the closest relationship. (How amusing would it be for the US Navy to obtain rights at Cam Ranh Bay?)

The TPP not only serves the purpose of strengthening economic ties, it also begins to establish the habit of working together with these countries, building trust, and improving on general diplomatic and working relationships. Successfully pursuing TPP would help persuade these countries that the US was serious about doing business in Asia. This would likely be true even if the agreement itself were to be rejected by Congress and sent back for renegotiation.

China is not included in the talks. Naturally, it would like to see them fail, and then, citing their failure (especially on a procedural vote) as evidence of the US’s unreliability, walk in with its own proposed agreement. Countries already nervous about Chinese encroachment might be inclined to listen, turn away from us out of fear, frustration, and disgust, and then cut a deal with the closer, more committed power.

The role that Chinese intelligence plays in this should not be underestimated. Their new friends, the Russians, and their subsidiary, Wikileaks, probably published what are purported to be sensitive portions of the TPP specifically in order to ramp up opposition sow discontent in the US in advance of the vote. Moreover, the catastrophic security breach at OPM, which now includes overseas contacts of US citizens, could be used to intimidate those operators in Asian countries who might not want the relationship with China to be exclusive.

One hesitates to freight any particular negotiations with too much importance, but it’s hard to see how walking away from the talks at this point could be anything but bad.

Today, Harry Reid’s Senate committed one more act of legislative malpractice by failing to override a filibuster of the bill to move the Keystone XL pipeline forward. The vote was taken for the sole purpose of giving political cover to nearly former Senator Mary Landrieu (D-La.), who’s in a runoff election. Much of her campaign has been based on her effectiveness in representing Louisiana’s interests. Louisianans overwhelmingly support the pipeline. But Harry Reid has willingly run interference for a White House that doesn’t want to make a decision, and risk alienating either the blue-collar wing or the environmental wing of its coalition. So the trick was to get to 59 votes, but not 60.

Apparently the Democrats thought Landrieu might be able to make some use of it. I’m not sure what failure was supposed to prove, but the fact that it was done at all proves that Harry Reid, like Dorothy, had the power to do so all the time. The message that comes through loud and clear is, “We’ll do anything to hold onto a Senate seat.”

Republicans have solidly supported building the pipeline, and will have no such aversion to embarrassing the White House, so it’s a fair bet that it will come up for a vote in the new Congress. How will it fare?

On the surface, things look pretty good. Supporters only need to get one more vote to move it to the President’s desk. Can they?

We can safely assume that all 54 Republicans will vote for the pipeline. So they need to find six Democrats to go along. Here’s the list of today’s Democrat aye votes:

Only one, Colorado’s own Michael Bennet, is up for re-election in 2016, so he’s probably a safe bet to stay in the Yes column. Gov. Hickenlooper’s reticence to take a position notwithstanding, Keystone remains popular here in Colorado. All the other Democrats up for re-election in 2016 voted No, which tells you that Dems either think those are safe seats, or that people in those states will have forgotten this vote by then. In any event, there’s little reason for them to change their votes to yes between now and 2016.

Casey, Donnelly, and Manchin all come from states with substantial coal production. These are fossil-fuel friendly states, these guys are up in 2018, and none of them won their seats by being economic suicidalists. McCaskill has been a vocal supporter of the pipeline in the past, as well. That gets us to five, and leaves us with:

Carper (D-DE)
Warner (D-VA)
Heitkamp (D-ND)
Tester (D-MT)

Warner also comes from a coal-producing state, and that part of Virginia almost delivered the election to Gillespie this year. Almost, but not quite. Warner doesn’t need to run again until 2020, and his colleague, Tim Kaine, voted No. Carper voted yes, but issued a pretty weasily statement back in 2013. I wouldn’t count on him.

Honestly, I think either Tester of Heitkamp could stay as Yes votes, and largely for the same reasons – they’re Democrat senators in increasingly Republican states. Montana just elected its first Republican senator in 100 years; Tester must be paying attention. Rob Port sees the vote as bad news for Heitkamp.

If Reid does decide to run for re-election, he could be facing a stiff challenge from jaw-droppingly popular Governor Sandoval, who would likely make much of whatever arm-twisting Reid needed to do to keep 41 members in line. On the other hand, he only needs to hold on to one of these senators, 2016 could be a good year for Dems, and it’s always more fun to be on the good side of a petulant Majority Leader with a long memory than on his bad side.

Looking over a CoBank report on the state of rail capacity in the West, I came across this astonishing graph:

The Staggers Act effectively deregulated the rail industry in this country, after almost a century of increasingly heavy-handed rules set out by the Interstate Commerce Commission (RIP). It took a few years for volume to rise, but contrary to the arguments of the regulators, rates fell, revenue fell, and productivity shot up almost overnight. As effects rippled through the economy, volume began to take off.

In recent years, as the cost of fuel has risen, and capacity constraints have become more evident, rates and revenue have started to rise, which accounts for the turnaround in railroad stocks.

What’s really striking is the stasis that the railroad industry was held in before 1980. The ICC set their rates, limited their service, and forced freight lines to continue to run unprofitable and largely unused passenger service, competing with bus lines that were getting significant federal help through the interstate highway system. How much of the overall economy’s stagnation and deterioration through the 60s and 70s was a result of this misguided paternalism can only be guessed at.

Harley Staggers, the author and chief sponsor of the Staggers Act, was no economic or political libertarian. He was a 16-term Democratic representative from West Virginia who tried to subpoena the footage from a CBS documentary on Watergate and filed an FCC complaint over the F-word in a song on a radio station. But he had enough sense to see that Appalachia’s coal industry needed a healthy railroad system to grow. He’s lucky that this act from his final term in office is what people remember him by.

That doesn’t even include tens of millions more that states have contributed for additional investment in ports and high-speed passenger trains that’s boosted the nation’s freight railroads….

The public dollars have built new overpasses to separate trains from one another, as well as cars and trucks. They’ve replaced aging bridges, laid new track and upgraded signal systems. They’ve paid to enlarge tunnels and raise bridges so that shipping containers may be double-stacked. They’ve built new facilities where cargo containers can be transferred from trucks to trains, or vice versa.

Supporters say these public investments, combined with private capital, are model infrastructure partnerships that will help take trucks off crowded highways, reduce pollution and improve the flow of goods to and from the nation’s seaports.

And another $450 million by the states. If you add up the numbers in the story, the total cost of the projects is about $5.7 billion, so governments have picked up about 17.5% of the overall tab. That leaves $4.7 billion in cap ex by the railroads themselves. In a properly functioning economy, they wouldn’t need the extra $1 billion to get most of these off the drawing board. But when the money’s available, and when the banks are doing better by leaving their money on deposit rather than loaned out in the world, this is what happens.

I work in the trucking industry, and I can tell you that intermodal traffic – freight that gets delivered to and from ramps from truck, but is delivered cross-country by train – is one of our fastest-growing businesses. It’s that way because over a long route, rail takes less fuel than trucks, given that most of the infrastructure is already in place. Rail, of course, is much more capital-intensive that road. But the Class I rails are long-since paid-for except for maintenance, and the containers tend to be owned by the shipping companies rather than the railroads.

But this is telling:

For all the public money that freight railroads have received, they haven’t talked much about it. The industry spent years trying to free itself from government regulation, and it doesn’t want federal money with too many strings attached.

No kidding. This is largely how they got into their mess in the first place, with massive land grants that left the door open for massive regulation. Then trucks and trains spent several decades battling each other over regulatory hegemony rather than on price and efficiency.

I’ve never been as hostile to good infrastructure spending as some other conservatives, provided that it’s not disastrously pointless spending like high-speed rail. There’s a good argument to be made that the transcontinental railway was a national security project as much as an economic one. Walter Russell Mead points out that in the 19th Century, by ship, San Francisco was closer to London than it was to New York because Brazil juts so far out into the Atlantic. There was some concern that unless we actually cemented our claims to the West Coast with people, the British might set up shop there and raise the price, or carve out some sort of permanent presence there a la Hong Kong or Gibraltar.

And while there’s always waste, sometimes you put up with some of that to create platforms that everyone can use. In the case of the railways, the platform was the land grant. In the case of the interstates, it was the roads themselves. Also, in the case of multi-user facilities like ports or urban rail crossings, there are property rights issues that need civil authority of some sort to work out, and better beforehand than in the courts for years.

Still, it seems as though most of this has gone not to resolving legal tangles, but to actual CapEx, and to protect Amtrak’s hopelessly outdated interests. So even at the cost of 1/800th of the “stimulus,” we probably overpaid.

But beyond the sheer efficiency gains, I think it’s under appreciated in developed countries how economic informality can create economic dynamism. Peruvian economist Hernando de Soto noted that lack of property titles and difficulties of the formal economy perpetuated poverty because people in developing countries couldn’t access the system for credit to fuel business, etc. In the developed world we’ve got a similar problem brewing. Our economy has been largely entirely formalized to the point where we are choking in red tape that has produced an economic system that has failed too many of its residents and leading to the creation of these informal economies as a safety valve. And our societies are very ill equipped to deal with that as we’ve become excessively formalized.

We don’t need to establish property titles as we already have them, but we do need regulatory systems that enable entrepreneurship and new business models like peer to peer to thrive. What’s more, I think enabling some level of an informal sector to flourish is actually a good thing, as it’s a de facto “incubator” for new ideas that can later be developed into a more officialized system. Without a toleration of informality, these would never get off the ground.

These innovations are getting stifled by incumbents, and it’s tying up a lot of the economy’s capital. You can’t rent a room in your house through AirBnB because that supposedly turns you into a hotel, and you’re avoiding the hotel tax. Uber can’t schedule limos because that somehow is unfair to Yellow Cab or Metro Cab. The car-sharing stuff seems to have found favor, though, for some reason. Lyft began service in Denver a couple of months ago.

I agree with some of the commenters that there’s a qualitative difference between creating new value – like nanotech and 3D printing – and wringing the most out of existing resources. Living standards really rise because of the former, not so much the latter. The big improvements in quality of life happen when productivity jumps, and that’s not going to happen through renting out that spare room on a regular basis, or sharing cars.

Bear in mind that not all restrictions are just naked rent-seeking. There are externalities associated with many businesses, and making sure that infrastructure gets paid for, and that you’re not taking up your whole block’s available parking with your in-home B & B are perfectly reasonable concerns. I think most of that is already recaptured by excise taxes and gas taxes and incorporation fees and oh, income taxes. So tying up capital in inventory is something most US companies have been avoiding since the 1980s, and no fair keeping us from joining in on the fun. But unless you’re turning that money into productive ideas, someone else is going to end up capturing the benefit of your thrift.

The wrong model will end up raising the cost of owning-your-own outright to the point where it becomes a luxury. I’m not entirely sure that’s healthy, and given the way these things tend to work, it could end up reinforcing a socialist model where ownership itself becomes a blurry concept.

For that reason, among others, I tend to prefer the Lyft model to the Car2Go model, although I hasten to add that that shouldn’t be enforced through regulation. (Neither, of course, should Car2Go get the benefit of a parking subsidy as they do now.) I think it’s healthier when the individuals own their own cars, rather than surrender ownership of a large part of the available fleet to what will end up being a small number of owners. Private ownership also ends up making it more likely that individuals will recognize an individual payment, rather than just avoiding an expense. Not only is that likely more satisfying, it’s also likely to result in more of the experimentation that we’re trying to encourage.

The other reason that a company going into business as a clearinghouse might prefer the Lyft model to the Car2Go model is the capital expense. Car2Go has to spend a lot of money to buy a fleet large enough to make the service worth using, to make sure that there will be cars available. And right now, it seems to be all tiny SmartCars. I suspect that the existing vehicle inventory out there on the road (or in the garage, as it were) pretty closely mirrors the overall composition of what people actually want to be driving. Why try to guess at a fleet composition, when the country has already done that math for you?

This past Saturday’s Wall Street JournalWeekend Interview was with Uber founder Travis Kalanick (“Travis Kalanick: The Transportation Trustbuster“). Uber allows a customer to summon an otherwise idle limo or SUV, on demand, through a smartphone app. The prices are competitive with town car service, and don’t require pre-arrangement. The article details, in part, Kalanick’s battles with various municipal regulatory authorities, who, often acting on behalf of established taxi interests, seek to keep his company from operating:

When I suggest to Mr. Kalanick that Uber, in the fine startup tradition, was using the “don’t ask for permission, beg for forgiveness” approach, he interrupts the question halfway through. “We don’t have to beg for forgiveness because we are legal,” he says. “But there’s been so much corruption and so much cronyism in the taxi industry and so much regulatory capture that if you ask for permission upfront for something that’s already legal, you’ll never get it. There’s no upside to them.”

…

Then, last year, came the clash with regulators in the city where they order red tape by the truckload: Washington, D.C. A month after Uber launched there, the D.C. taxi commissioner asserted in a public forum that Uber was violating the law.

This time Uber was ready with what it called Operation Rolling Thunder. The company put out a news release, alerted Uber customers by email and created a Twitter hashtag #UberDCLove. The result: Supporters sent 50,000 emails and 37,000 tweets. Mr. Kalanick says that Washington “has the most liberal, innovation-friendly laws in the country” regarding transportation, but “that doesn’t mean the regulators are the most innovative.” The taxi commission complained that the company was charging based on time and distance, Mr. Kalanick says. “It’s like saying a hotel can’t charge by the night. But there is a law on the books, black and white, that a sedan, a six-passenger-or-under, for-hire vehicle can charge based on time and distance.”

In July, the city tried to change the law—with what were actually called Uber Amendments—to set a floor on the company’s rates at five times those charged by taxis. “The rationale, in the frickin’ amendment, you can look it up, said ‘We need to keep the town-car business from competing with the taxi industry,’ ” Mr. Kalanick says. “It’s anticompetitive behavior. If a CEO did that kind of stuff—you’d be in jail.”

Unfortunately, the Colorado Public Utilities Commission proposed rule changes this month which, if enacted, would shut UberDenver down. We need your help to prevent these regulations from taking effect! Sign the petition!!

Uber’s pricing model will be made illegal: Sedan companies will no longer be able to charge by distance (section 6301)

This is akin to telling a hotel it is illegal to charge by the night.

Uber’s partner-drivers will effectively be banned from Downtown — by making it illegal for an Uber car to be within 200 feet of a restaurant, bar, or hotel. (section 6309)

This is TAXI protectionism at its finest. The intent is to make sure that only a TAXI can provide a quick pickup in Denver’s city center.

Uber’s partner-drivers will be forced OUT OF BUSINESS — partnering with local sedan companies will be prohibited. (section 6001 (ff))

The PUC has run interference for the taxicab cartel here before, last year shutting down a popular airport ride sharing program. In 2011, they denied additional permits to Yellow and a proposed start-up, Liberty Taxi. And the Union Taxi Cooperative’s battle to begin service (eventually successful) was the stuff of legend. Their actions to the detriment of electricity ratepayers have been well-documented by Amy Oliver and Michael Sandoval over at the Independence Institute. But at least in those cases, they had the fig leaf of enforcing existing law. Here, as in DC, they’re actually proposing to change the rules in order to run the company out of town.

As a living, breathing example of regulatory capture, Colorado’s PUC is in a league of its own. Let’s hope that Uber’s supporters are able to persuade them to cease and desist their harassment of the company.

What makes it so hard to fight the growth of government is its ability to create client groups seemingly at will, with the money of the very people it’s seeking to co-opt. I see it myself all the time at the JCRC, where what had been private, service groups are reduced to begging for scraps and favors in front of legislative committees. At one time they thought it more expedient to do that than to make the case for the value of their work to the community they served and represented. Now they’re caught, and even when they’re not temperamentally inclined to go along with the leftist agenda, they often do because they can no longer imagine doing business without government support.

So it happens with PERA, too, which has announced the Colorado Mile High Fund, a fund geared towards investing in Colorado entrepreneurs who have partners, but are also having a hard time finding additional capital.

“We heard from businesses around the state during the development of the Colorado Blueprint that increased access to capital is critical to their success and that of our state’s economy,” said Gov. John Hickenlooper. “The creation of the Colorado Mile High Fund will improve that access to capital and we are pleased that Colorado PERA’s partnership will benefit and help grow companies here in Colorado.”

Even if this turns out to be one fund in the option and under-used 401(k) option, entrepreneurs and start-ups will now have a reason to support increased funding for a government-sponsored employee retirement plan, whose money much come from the pockets of the taxpayer. The most dynamic sector of the state’s economy will be effectively recruited on behalf of its most stifling.

Wednesday night, Mitt Romney punctured the balloon that was Barack Obama’s inflated reputation as a debater and communicator. I guess having a hollow core and thin skin is a bad combination.

Romney did this largely by turning out not to be the stick figure that Obama had been running against for the last 18 months, and which he had apparently internalized as actually being the actual Mitt Romney. So in some respects, the left’s and the Democrats’ disillusionment with Obama is a result of Obama’s disillusionment with the opponent his campaign constructed for him. So far, his only response has been to complain that Mitt the Man is a better candidate than Mitt the Myth, and to argue that Mitt must have been lying during the debate. Romney’s campaign has responded with an ad calling Obama on his own campaign’s admission that Romney’s proposed net tax cut won’t be any near $5 trillion, an admission echoed by the media “fact-checkers” that, up until now, Obama had held up as the Gold Standard of Absolute Truth.

That said, some of Obama’s own claims during the debate turn out to be at least misleading. At one point, during an answer ostensibly about working across the aisle, Obama mentioned three free trade agreements passed in 2011:

“That’s how we signed three trade deals into law that are helping us to double our exports and sell more American products around the world.”

But of course, Obama inherited those free trade agreements – with South Korea, Panama, and Colombia – from the Bush administration, and he sat on them for over two years before submitting them to the Republican-controlled House, where they were approved, and the Democrat Senate, where they passed overwhelmingly. In this regard, the comparisons with President Clinton are instructive. One of Clinton’s first acts was to submit NAFTA for Congressional approval, where it passed a Democrat House largely on the strength of Republican backing, and against the wishes of the Democratic majority. The Democrat leadership simply wasn’t going to submarine a brand-new Democrat president on one of his first initiatives. Obama had the option to do the same thing anytime during his first two years in office, but chose to wait until the demands grew loud under a Republicans House to do so.

His claims to being open to Republican ideas have always been a sham, but in this case, they’re little more than an attempt to cover up for the fact that he all but ignored economic growth and job creation for his first two years in office. The difference between Clinton’s & Obama’s trade policy lies in contrast to the similarity in their politics, though. Clinton has tried mightily to take credit for the benefits of a welfare reform bill that he only adopted once his party lost control of Congress. Likewise with Obama and these bilateral trade agreements. (In what would be a bizarre claim for an actual news organization, the Washington Post at the time tried to spin this as a win for Obama, rather than his bowing to reality.)

Closer to Colorado, Congressman Ed Perlmutter apparently never got the message, and was the one member of Colorado’s Congressional delegation to vote against all three agreements. Colorado’s trade with Panama and Colombia is relatively small, but we export hundreds of millions of dollars a year in goods to South Korea, an economy which, while running a trade surplus, isn’t nearly the export-driven economy that it used to be. Perlmutter was the only Colorado representative who professed to see a threat to local jobs in these agreements. Even Diana DeGette, long in the tank for the unions, only opposed the Colombian agreement.

As we progressively disabuse ourselves of illusions regarding Democrats, perhaps the next two to fall will be that Obama deserves credit for free trade, and that Perlmutter understands the topic at all.

The Democrats-with-a-byline who populate the MSM are no doubt going to point with glee at the performance of the markets over the last quarter. A good Q3 in an election year usually means re-election for a sitting president, and with the Dow Industrials up 6.6%, the S&P 500 up 8.4%, and the NASDAQ gaining 9.4%, the champagne will be out at the Tiffany Network tonight. (Maybe Jay-Z and Beyonce have some left over for them.)

But perhaps we ought to look at some other indicators, as well. Since QE3, the third, unlimited round of the Fed’s pump-priming inflationary stimulus, was announced on September 13th, the markets are down. The Dow is off 0.5%, the S&P off 1.3%, and the NASDAQ has also given back 1.3%. These are shorter-term moves, to be sure, but they also mean that the little boost from the QE3 announcement has faded, and the grim reality of a stagnant job market, collapsing durable goods orders, rising foreclosures, and downward revisions in company guidance as a result of rising costs. All the money printing in the world can’t actually reverse business fundamentals.

It’s also worth looking at the Dow Transportation Index over the same period. Over the last quarter, that index is down 3.4%, and down 5.8% since the QE3 announcement. Clearly, the truckers and trains aren’t feeling the love. This is important as an indicator in its own right – road and rail are expecting to have less stuff to move, and their fuel and personnel costs are rising.

But it’s also a contra-indicator according to classic Dow Theory, which says that you only get a confirmation of a market move if both the Transports and the Industrials move in the same direction. That’s because a lot of what rail moves is related to industrial production. Three months of divergence, in Dow Theory, is roughly an eternity. I don’t know if it’s unprecedented, but it’s a very long time. Sooner or later, one or the other will have to move in the other direction. (It’s possible that they both will, in which case we’ll have the same problem for a while longer, just different winners and losers.)

The political effect may well be real and enduring (although a pretty good Q3 in 2010 wasn’t enough to save Nancy Pelosi’s sorry hide). People may look at a good quarter for their 401(k)s and their pension plans (although the government employees were probably voting for their subsidizer, anyway), and conclude that the worst is over. That would be both a financial and an electoral mistake.

“When everyone says you’re drunk, you’d better sit down.” When both The Wall Street Journal and NPR have questions about a policy, it’s time to rethink it.

The Renewable Fuel Standard’s ethanol mandate requires an increasing amount of ethanol be blended in gasoline every year. Last year, more than a third of America’s corn crop went to ethanol; this year, with decreased production and increased diversion, that proportion is expected to rise to at least 40%. This requirement has pitted ethanol producers against food and feed consumers of corn, driving up corn prices even faster than normal supply shortages would dictate.

The EPA could, if it chose, suspend the ethanol mandate altogether for the year, but so far has chosen not to do so. Not only Agriculture Secretary Tom Vilsack, but Interior Secretary Ken Salazar have been strong supporters of ethanol. On July 16, 2008, Salazar, then a U.S. Senator from Colorado, spoke on the floor of the Senate in terms of ethanol’s contribution to America’s “energy independence,” its importance in keeping gas prices down, and the jobs that were then being created on Colorado’s eastern plains in the new ethanol plants being opened there.

The Obama Administration may have been caught off guard by the severity of the current drought, but questions about price distortions caused by the mandate aren’t new. Last year, in February of 2011, Vilsack addressed exactly these same concerns at a press conference [See CNSNews.com video above]:

“Certainly not worried in the long term about our capacity to produce enough corn to meet our food and feed needs as well as our fuel needs. The last time we had any issue relative to food prices when this issue was raised about ethanol production, our studies indicated that the ethanol production was a very, very, very small percentage of the food price increases.

“When you look at food price increases, you’re looking more at marketing, advertising, refrigeration, transportation, expenses that are incurred in the food chain. And you’re also recognizing that farmers are receiving an ever shrinking share of the retail food dollar. There are a lot of folks that have to be satisfied out of that retail dollar.

“So I’m not concerned about it. We obviously will continue to look at what the Spring will bring, in terms of cropping decisions. Part of what’s happening worldwide is the result of weather conditions in a number of countries. Export controls and restrictions by some countries have made it a little more difficult. But here in this United States, we’re anticipating food prices to rise somewhere between 2-3%, which is relatively moderate.”

The problem, of course, is that neither people nor livestock can wait for the long run to eat. It may be easy enough for us to adjust to some food price increases, but folks living closer to the margin, as in Mexico, don’t have that luxury. See Egypt for what happens when entire countries have to choose between food and fuel.

And while Vilsack has correctly identified the price inputs into food production, he’s forgotten that prices change because of action on the margin, and the price of corn has proven to be especially volatile, but also especially remunerative to farmers in recent years. A large part of this increase is a result of the ethanol mandate. And contrary to Sec. Vilsack’s protestations that little of the money is flowing through to farmers, agricultural land values have been shooting through the roof, indicating that investors see corn production as a good investment.

The winners include ethanol producers, who are guaranteed a market for their product, corn farmers, who see the results of the government bidding against private ranchers and farmers for their product, and fertilizer companies, whose nitrogen-based product is needed to save the soil from the increased corn crop. Much of the increased corn planting takes place at the expense of soybeans, which replenish the soil. (As a side note, a major component of fertilizer is natural gas; the combination of falling natural gas prices and rising corn plantings has been a windfall for those companies, so to the extent that the farm vote is in play, look for politicians to make hay with that.)

The losers include ranchers, who are having to bid against the government for corn to feed their herds, and you. Because not only are food prices rising faster than your paycheck, there’s little to no statistical evidence that all this diversion of food to fuel is keeping gas prices down. And in spite of the mandates, ethanol plants are shutting down, anyway.

For decades, as their agriculture became a running joke, the Soviet Union used to blame chronic food shortages and poor crops on the weather. A Russian history professor of mine responded to a student’s question about Gorbachev’s political prospects, “Well, he’s got his main rival (Yeltsin) in charge of agriculture, so I’d say he’s in pretty good shape.”

It’s doubtful that Barack Obama felt threatened by Vilsack’s presidential ambitions (his abortive presidential run ended in early 2007, about a year before his home-state Iowa Caucuses), but it’s likely that Vilsack will end up as collateral damage of this Administration’s misbegotten economic and energy policies, nevertheless, when he finds himself – hopefully – looking for work after the November elections.